The Spyder Trust slightly violated the major 38.2 per cent support at $110.41 on Tuesday and broke below the weekly uptrend (line a). Friday’s rally brought it back above this trend line, which is a slight plus.
The S&P 500 A/D line violated its short-term support several weeks ago, but has turned up from its long term support (line c). It has also tested the highs from 2010 (line b), which would be expected to provide support.
If the SPY can surpass initial resistance in the $120.50 to $121 area, the $124 to $125.50 level will become more difficult to overcome.
The Spyder Diamonds Trust has so far held above its 38.2 per cent support of $105.46, as last week’s low was $105.94. The uptrend from the 2009 lows (line d) has been broken, and this now represents major resistance in the $118 to $120 area.
A few weeks ago, I mentioned the head-and-shoulders top in the DIA, and the downside targets from this formation have already been exceeded.
The Dow Industrials’ A/D line is acting much better than the S&P 500 A/D line, as it is holding above both of its uptrends (line f). It is also holding above the support from 2010 (line e).
If stocks are going to resume their uptrend, the big-cap Dow stocks should do well.
The tech sector has continued to hold up the best. The PowerShares QQQ Trust is holding above the uptrend from the 2010 lows, and is well above the major 38.2 per cent support at $46.54.
The QQQ came close to closing the week higher, and the best fundamental case can be made for some of the tech stocks, as many have strong earnings and lots of cash. The Nasdaq-100 A/D line is also holding above the March 2011 lows, unlike the other major market averages.
There is next strong resistance at $54.40 to $55.30, and then major levels at $56.60.
iShares Russell 2000 Index Fund was hit the hardest last week, as it dropped well below the 38.2 per cent support at $66.74 with the week’s low at $63.76. This makes a decline to the 50 per cent support at $60.54 more likely.
IWM was able to close back above its uptrend (line a), but still expect the small caps to underperform.
The Russell 2000 A/D line is finally acting stronger than prices, as it is holding well above the major support (line c). It broke the yearlong support (line b) the prior week.
The Dow Jones Transportation Average warned us of the recent drop, as the on-balance-volume (OBV) analysis warned of a top in July.
The major 38.2 per cent support at 4,296 was slightly exceeded last week, and a weekly close below it would signal a drop to the 50 per cent support at 3,878.
The Transports have traded well below the weekly starc-bands for the past two weeks, which signaled that selling at the recent lows had a high risk. There is major resistance now in the 4,900 to 5,000 area.
There was heavy volume selling in all of the major sectors, as all dropped sharply, and the 50-day MA is below the 200-day MA for all the major sectors. This is a negative sign, and will require a sharp rally by early in the fall to reverse.
The energy sector looks the most attractive from an intermediate-term perspective, as the outlook for crude oil over the next year is positive despite its recent sharp drop.
October crude oil is getting very close to the long-term support in the $76 to $78 area, where I would expect prices to stabilize. The oil equipment and services stocks also show better relative performance, or RS analysis, so I will be watching them closely.
The most dramatic move last week after the plunge in stock prices was the sharp drop in rates, especially the short-term rates. Clearly the downgrade of US debt was trumped by the Fed’s new positions on rates.